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As gold and silver prices steadily but begrudgingly climb upward one has to marvel at the resilience of the dollar.

Post by Janet Jones
on June 8, 2011

June 08, 2011 – As gold and silver prices steadily but begrudgingly climb upward one has to marvel at the resilience of the dollar. “America is tragically bankrupt, unable to pay its lenders without printing the dollars to do so,” says highly regarded precious metals expert Peter Schiff. “The clock is ticking until the dollar faces a crisis of confidence like every other bubble before it.” So what is keeping the greenback on life support?

The answer is simply that the world remains addicted to fiat currency, and of the contenders for global reserve the dollar is the least rotten apple in the barrel. “When it comes to fiat alternatives, it appears the world would be going out of the frying pan and into the fire,” Schiff says.

Consider the most widely discussed alternatives: the euro, yen, and China’s renminbi.

The euro is proving to be a failed experiment. The region’s dominant economy by far is Germany and they have unequivocally declared that they are not about to let the rest of the region carry them into another Weimar hyperinflation. And the eurozone PIGS (Portugal, Ireland, Greece, and Spain) have demonstrated a willingness to revert to their own currencies in order to inflate their way out of debt. “That prospect is undermining confidence in the euro at just the time when the world is considering where to go next,” Schiff says.

The yen isn’t really a true contender because Japan doesn’t want it to be the global reserve. The country has the highest debt-to-GDP ratio among developed countries, but most of their debt is domestically held. However, Japan is heavily dependent on its trade surplus to maintain stability. Making the yen the new reserve would undermine the government’s persistent efforts to hold down the yen’s value, exacerbating the debt problem while destroying their trade advantage.

That leaves China, and they have made no bones about their desire to have the renminbi be the new reserve. But the country has only recently begun to loosen its grip on the currency, and their true intent is questionable. China is still a communist country that has consistently proven unwilling to give its citizens free economic reign and has yet to prove its viability in a truly free and open market.

The logical alternative, of course, is to forego fiat money all together and make real money the new reserve. As Schiff says, “Throughout human history, merchants have always turned to pure gold and silver over every pretender.”